impressive oil and gas conference feedback

These notes are from Goldman Sachs following last weeks Sydney Oil and Gas conference. The conference hosted about 30 conventional and unconventional oil and gas players in Sydney for an update on their activities.

Papua New Guinea Exploration: This country continues to be an area of focus for Australian oil and gas investors, with the ExxonMobil LNG project under construction, the land-grab is continuing and exploration activity continuing. Recent discoveries in the Western forelands by Talisman are supportive for further development projects.

Overall we thought the 2 most impressive companies were:

New Guinea Energy (NGE.ASX Not covered) and Eureka Energy (EKA.ASX Not covered):

We continue to be attracted to NGE's acreage positioning, quality partnership with Talisman and abundance of drilling catalysts in the coming 12-24 months. Discoveries of reasonable size here are likely to find a commercial market, and NGE continues to remain very focussed. The stock is speculative by nature, and we expect exploration drill by NGE and surrounding players will continue to drive share price performance.

New Guinea Energy:

($152m mkt cap @ $0.18/share Not covered)

We have been watching NGE for quite some time now, since Talisman brought significant credibility to NGE's exploration portfolio. While NGE did drill its 100% oil prospect last year (dry hole), 2011 is the first year of the more important gas drilling with Talisman. NGE expects to drill up to 6 wells over the next 2 years, and also undertake significant seismic acquisition in the PNG foreland. This should de-risk its acreage and provide more clarity around likely valuation. While it is a pure exploration play and is therefore speculative, we like the PNG gas exploration thematic, particularly given it�s attractive fiscal regime, government support, and the visible path to commercialisation of any discoveries (ExxonMobil�s LNG project, or Talisman LNG proposal).

Strategy: New Guinea Energy owns 6 exploration tenements onshore PNG in the forelands and highlands, which it describes as one of the last available highly prospective, onshore, nonaligned acreage positions in SE Asia. NGE has farm-in agreements with Talisman Energy Inc to fund seismic programs (US$11 million) and up to a 6 well program (US$90 million) over next several years.
Catalysts: NGE plans to commence drilling two wells in PPL269 in the near term, firstly the Sepalosiphon-1 prospect in 2Q CY11 (46mmboe mean), and the Thelasis-1 prospect (44mmboe mean), both with Talisman. NGE will also drill PPL268 by the end of this year (this block was obviously upgraded since the Rift discoveries at Puk Puk and Douglas), also with Talisman. NGE also plans to drill PPL277 with Sasol this year (we note that Oil Search intends to drill Huria in late 2011, and NGE maps this to extend into their PPL277 permit, no doubt NGE will be watching Huria with interest when it is drilled). Plenty of drilling coming up!

Feedback from presentation: Dan Kendrick was keen to highlight two recent drilling successes nearby PPL269. Firstly, the recent forelands discovery by Eaglewood at Ubuntu-1 (in PPL 259, Eaglewood 40%, P3 of Thailand 10%, Talisman 50% - however Eaglewood has 90% of other areas of this permit) which was located ~17km east of Ketu/Elevala (Eaglewood noted Ubuntu-1 as being condensate rich, consistent with the regional setting).

Also, Dan suggested the Stanley-2 well by Talisman/Horizon found an additional ~40m of pay which likely means a significant upgrade of reserves at Stanley (previously 283Bcf). The Stanley-2 result bodes very well for NGEs Stanley North and Champion prospects.

Dan noted that Andrew Young (ex-Anzon) has recently joined the NGE board to add further technical expertise to the Board.
Cash balance: $30.9m (3rd February 2011).
Institutional Ownership: Soros Fund Management ~19.5%